Judge allows Jump Crypto to file Terra documents confidentially in SEC lawsuit

A judge has granted Jump Crypto’s motion to confidentially submit certain materials during the discovery phase in the US Securities and Exchange Commission’s lawsuit against Terraform Labs and its founder Do Kwon.

Federal Judge Jed Rakoff filed the motion in New York Tuesday. Should the court later decide a document needs to be made public, the ruling may be overturned, Rakoff noted in his opinion.

Jump Crypto has been accused of manipulating the price of stablecoin TerraUSD and in turn raking in a $1.28 billion profit.

Terra, according to the SEC, loaned “a US trading firm” 30 million Terra (LUNA) tokens in November 2019 and an additional 65 million LUNA in September 2020. The trading firm in question is Jump Crypto, per a report from The Block.

The “loans” were to improve liquidity, Terra said, but the trading firm was “continuously selling LUNA into the market,” the SEC alleged.

When TerraUSD lost its peg to the US dollar in May 2021, Jump Crypto entered into an agreement to purchase a large sum of the stablecoin in an effort to stabilize its value, according to securities regulators.

“Defendants falsely and misleadingly represented to the public that UST’s algorithm had successfully re-pegged UST to the dollar, giving the investing public the false and misleading impression that the re-peg had occurred without human intervention and misleadingly omitting the real reason for the re-peg: intervention by [Jump Crypto]” the February 2023 complaint reads.

The SEC filed its complaint against Terra and Kwon in February this year, about nine months after the Terra ecosystem collapsed. The securities regulator alleges the Kwon “orchestrated a multi-billion dollar crypto asset securities fraud” between April 2018 and May 2022.

In its complaint, the SEC alleges that Kwon and his company deceived investors. They reportedly made false claims that the Korean mobile payment processor Chai used the Terraform blockchain for transactions and settlements. According to regulators, these claims were not true.

Jury selection is scheduled to begin on Jan. 29, 2024 in downtown Manhattan, should the case proceed to trial. Currently, both the SEC and Terra have requested a summary judgment, which, if granted, could result in the matter being settled outside of trial.

Rakoff in July denied Kwon and Terra’s motion to dismiss the case, ruling that the government had made enough of a case against the company and its founder to proceed.

“[B]ecause, according to the well-pleaded allegations of the complaint, the defendants used false and materially misleading statements to entice US investors to purchase and hold on to defendants’ products, and because those products were unregistered investment-contract securities that enabled investors to profit from the supposed investment activities of defendants and others, the motion to dismiss must be denied,” Rakoff wrote in his July 2023 opinion.

In addition to the SEC’s civil suit against him, Kwon faces criminal charges in the US in relation to the collapse of the Terraform ecosystem. Kwon is currently serving a four month prison sentence in Montenegro for alleged document forgery. The country approved his extradition earlier this month. Following the completion of his sentence, authorities will decide whether to extradite the founder to the US or South Korea.

Get the news in your inbox. Explore Blockworks newsletters:

The Breakdown: Decoding crypto and the markets. Daily.
Empire: Crypto news and analysis to start your day.
Forward Guidance: The intersection of crypto, macro and policy.
0xResearch: Alpha directly in your inbox.
Lightspeed: All things Solana.
The Drop: Apps, games, memes and more.
Supply Shock: Bitcoin, bitcoin, bitcoin.